Well, it will be an interesting year for sure. The IRS already knows I'm involved with crypto, because I claimed $25K back in 2014. So, it shouldn't be too surprising for them to see me claim as much as I will for 2017 & 2018, given that everything went up over 1000% since... glad I claimed them back then, even though many suggested to not report it (was a different time).
![[H]ard|Forum](/styles/hardforum/xenforo/logo_dark.png){kind=logo}
Taxes on Cryptocurrency
- Thread starter w1retap
- Start date
Archaea
[H]F Junkie
- Joined
- Oct 19, 2004
- Messages
- 11,825
I'm trying to dig up tax laws in preparation for doing my own taxes this year. I haven't yet read this whole thread yet, but will - good to see a long thread on this here with various opinions. From my research and conversation with a friend this morning.
2014 IRS document:
See Question 8
https://www.irs.gov/pub/irs-drop/n-14-21.pdf
Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?
A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.
Simple tax advice - sounds HORRIBLE
https://ttlc.intuit.com/questions/4175228
Oh and you might be self-employed and so have to pay another 15% on taxes
https://turbotax.intuit.com/tax-tips/self-employment-taxes/the-self-employment-tax/L8xXjolB4
so if you are middle class -- that's 25% taxes required for mining profits at time of mining the coin, + 25% taxes on capital gains taxes if sold in less than 1 year + 15% self-employment taxes + 10% electricity.
Enjoy your 25% remainder -- well that is until Bitcoin drops from 18,000 to 9,000 and your 25% becomes 12%.
OH -- and by the way - you can't charge for your time, only offset for your expenses (hardware, electricity)
yeah US government tax law!!!
The revolutionary war was fought over less than 10% taxes from sources I've read --- some say lower - like below (2-3%)...now we just accept this type of nonsense???
https://alibertarianfuture.com/big-government/taxes-big-government/tax-rates-under-king-george-compared-to-now/
2014 IRS document:
See Question 8
https://www.irs.gov/pub/irs-drop/n-14-21.pdf
Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?
A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.
Simple tax advice - sounds HORRIBLE
https://ttlc.intuit.com/questions/4175228
Oh and you might be self-employed and so have to pay another 15% on taxes
https://turbotax.intuit.com/tax-tips/self-employment-taxes/the-self-employment-tax/L8xXjolB4
so if you are middle class -- that's 25% taxes required for mining profits at time of mining the coin, + 25% taxes on capital gains taxes if sold in less than 1 year + 15% self-employment taxes + 10% electricity.
Enjoy your 25% remainder -- well that is until Bitcoin drops from 18,000 to 9,000 and your 25% becomes 12%.
OH -- and by the way - you can't charge for your time, only offset for your expenses (hardware, electricity)
yeah US government tax law!!!
The revolutionary war was fought over less than 10% taxes from sources I've read --- some say lower - like below (2-3%)...now we just accept this type of nonsense???
https://alibertarianfuture.com/big-government/taxes-big-government/tax-rates-under-king-george-compared-to-now/
Last edited:
Azrak
[H]ard|Gawd
- Joined
- Oct 4, 2015
- Messages
- 1,114
I mine as a hobby. I am not self-employed. I am declaring my mining income on 1040 line 21 (other income) according to a spreadsheet (that I have not made yet) that shows each mining payment (when I received crypto as payment for mining), the type of crypto it is (ETH, BTC, ZEC, etc.), the date when I received it, and its fiat value in USD for that day. I will then add up all of the fiat USD values and that is what I will put on line 21.
In other words, I'm pretending it is "other income" because it is. It is simply income from doing work (mining) that isn't paid in native US dollars. The IRS only deals in USD, so I will pay taxes in USD according to the value the payment was worth in USD on the day that I received it. It does not matter that I have not been able to pull any money out into USD (my bank won't allow links to CB/GDAX and CB Paypal is broken and likely never to be fixed). Which sucks.
In other words, I'm pretending it is "other income" because it is. It is simply income from doing work (mining) that isn't paid in native US dollars. The IRS only deals in USD, so I will pay taxes in USD according to the value the payment was worth in USD on the day that I received it. It does not matter that I have not been able to pull any money out into USD (my bank won't allow links to CB/GDAX and CB Paypal is broken and likely never to be fixed). Which sucks.
So if you received 20 payments a day over all your various mining efforts, for the last year, you're really going to draw up 7,300 transactions? Then somehow have a source for the usd value for every single one of those transactions at the time you received payment?
At one point I was getting 5 payments a day just for burstcoin, this is bananas. Anyone have a nice source that lists the usd value of every coin for the last year, broken down by day at least?
Azrak
[H]ard|Gawd
- Joined
- Oct 4, 2015
- Messages
- 1,114
I was not planning on being that detailed. Once per day per coin seemed reasonable. Although I could see arguments to be even more detailed. It sucks trying to come up with something without good guidance from the IRS.
That's the rub. I don't know where to get that info yet. Or even if it exists.
Azrak
[H]ard|Gawd
- Joined
- Oct 4, 2015
- Messages
- 1,114
What do day traders do? I assume they have software that keeps track of each buy and sell and the value of each transaction, including basis, in order to calculate income/profit. Would crypto be similar, thus requiring exact USD conversion values for the moment the crypto was deposited into my wallet? That would be crazy given the current lack of such tools and info.
Archaea
[H]F Junkie
- Joined
- Oct 19, 2004
- Messages
- 11,825
So lets say you put all this other income down (which isn't truly income until you cash it out to fiat, because you can't use it for anything (alt-coins anyway). And crypto craps the bed in 2018. So for 2017 you increased your income by say $50K, let's use an arbitrary number.
You then pay $12,500 in taxes for income you NEVER use, never saw, never were able to do anything with. Then in 2018, the crypto you held goes way south and now your $50k on "income" is now worth $5k. You cash out because you get cold feet. You pocket $5k. You try to declare a loss, but realize the max loss you can declare is $3k.
Wait a minute, you already paid $12,500k in taxes on something that is now worth $5k. Yeah you can claim a $3k loss against your other income. You are now down for the year and you never even had the profit in hand.
Doesn't make any sense to me. The hazy rules on the books now only would seem to work if Crypto was a one way ticket UP in value -- and we all know it isn't.
Only makes sense to pay as you cash out to fiat or as you take true profit or loss in some capacity. IMO. The rules need to be logical.
Last edited:
At the heart of this is the argument of is cyrpto currency a currency or a commodity.
Commodities are property like real estate, and gold. Neither of which if you have in foreign jurisdictions do you have to report to the IRS. But in the IRS's efforts to compel account information from banks or exchanges to track money laundering or tax evasion the IRS needs to make the argument that crypto is a currency to fit into existing laws that give the IRS right to that information.
Hence a dichotomy by the government that crypto is a commodity by CTFC for futures trading yet crypto is a currency by IRS needed for enforcement purposes.
If an employee received stock option grants (stocks are property) as part of employment package, they do not pay taxes when granted the stock option. Stock options are only taxable when exercising the stock option (ie cashing out to fiat). This is how cyrpto should be viewed and only taxed when converting to fiat.
However, IRS has a problem because this would then limit their ability to get information. Hence IRS must view crypto as a currency and this leads to rules of taxing when crypto received as though it was exercised for fiat exchange at the moment received.
Commodities are property like real estate, and gold. Neither of which if you have in foreign jurisdictions do you have to report to the IRS. But in the IRS's efforts to compel account information from banks or exchanges to track money laundering or tax evasion the IRS needs to make the argument that crypto is a currency to fit into existing laws that give the IRS right to that information.
Hence a dichotomy by the government that crypto is a commodity by CTFC for futures trading yet crypto is a currency by IRS needed for enforcement purposes.
If an employee received stock option grants (stocks are property) as part of employment package, they do not pay taxes when granted the stock option. Stock options are only taxable when exercising the stock option (ie cashing out to fiat). This is how cyrpto should be viewed and only taxed when converting to fiat.
However, IRS has a problem because this would then limit their ability to get information. Hence IRS must view crypto as a currency and this leads to rules of taxing when crypto received as though it was exercised for fiat exchange at the moment received.
Last edited:
You are completely right. And when someone says the Government and IRS wants to get you coming and going, we all know what that is because you explained it. It's like heads we win, tails you lose.
Azrak
[H]ard|Gawd
- Joined
- Oct 4, 2015
- Messages
- 1,114
I totally agree with you.
Therefore making it simply "other income" doesn't make sense.
Let's read a bit of the IRS 2014-21 PDF again:
I take this to mean that I must track all crypto payments made to me in a spreadsheet with the date of payment, payment amount, and USD value of the payment at the time of payment. Down to the second accuracy I can't believe would be required, so the average for the day should be good enough since I am not doing anything with it (yet).
Since it is property, I'm not sure how to include it in gross income. I'll need to read about it some more.
This is true. That’s why I keep saying that irs will be going after large withdrawals and I think Coinbase will report them automatically. Now if we think about it this makes sense and average person like me. The only way for me to cash out is through coinbase right? I don’t see irs going after someone trading penny’s to the dollar. If you are someone trading 25k+ at a time I can see that as being a person of interest. It’s hard for me to believe that IRS is going to spend time and effort going after every single person when they know they can just watch one source with withdrawal and that is coinbase. If irs comes to me and says hey you owe taxes on 50k the money that I never withdrew or sent to another person which I can prove they will easily correct their mistake. I honestly have never had a bad experience with IRS. I made a mistake before on my taxes and it was easily corrected. They never treated me like my intent was to scam them. May be they go after people withdrawing large sums and never reporting it.
Azrak
[H]ard|Gawd
- Joined
- Oct 4, 2015
- Messages
- 1,114
And that's the problem I have with reporting income and paying taxes on crypto that I have not done anything with. It's just numbers in a computer program (wallet). Personally, I can't even get fiat money (USD) out of coinbase/GDAX for the crypto I mined. Bank=nope, Paypal=nope. It sucks. My best bet is to buy something from Newegg or another vendor that takes BTC as payment. I'd say I owe taxes on the USD equivalent of the BTC used for the transaction, but I don't think that's how the IRS wants to do it.
yea. That’s the problem. I actually may have lost money last year. I entered crypto on March April last year. Very new to it. Learned a lot. Didn’t lose large sums. Mined eth with 4 rigs and then having PGE electricity was almost 1k a month so I sold off 2 rigs and slowly phased them out when I broke close to even after mining and and selling rigs. The reason I assume I lost is be cause I mined 17 eth that I didn’t hold I panic sold some shit during fud when I wasn’t accustomed to it and lost a lot of mined profits. If honestly I calculate it all out what I spent on my rigs and what I earned when I sold it was probably a few k loss. But I made a few thousand from trading. So overall little profit. May be I should Amend my taxes and do that shit lol. But I didn’t bothers. It’s always something I can prove. They can always look at how much I cashed to the bank. Because they can’t say oh once he had this much in crypto but he did nothing with it that means he owes us this much even though I didn’t make anything. They know it too that’s why they want you to self report your profit. Since I didn’t make much I didn’t bother reporting. Next year it will be a clearer picture as this year I have learned better and I stopped mining and been sitting in cash mostly the entire time. Problem is if you have a lawyer and since this is so complicated the burden of proof will be on them. Because they can’t make something it’s not.
Now this year if my 10k turns to 100k this year. Yes I will report that. But I am not reporting every mother fuckin transaction. If they want I can provide those later as exchanges keep your history. Too much damn work. I would look at what I started with and what I have now and report it. Think about it if you traded and captured every transaction your overall profit and loss likely won’t change much so it doesn’t make much sense to record every redaction when end results will be the same. Because your profit or losses won’t change at the end.
Last edited:
Azrak
[H]ard|Gawd
- Joined
- Oct 4, 2015
- Messages
- 1,114
Been doing a ton of reading tonight. It seems that the website bitcoin.tax might be able to help with the tax reporting for mining (see last 3 links below). Apparently they can take addresses and read the blockchain to get all transactions (payments from mining to your wallet address(es)), plus the dates and the USD value on that date. Or they can connect with various exchanges to get the info. It's exactly what I need as a small-time miner.
References (aka crap I read through tonight trying to find answers):
https://ttlc.intuit.com/questions/4...ord-each-day-mined-or-when-you-receive-payout
https://www.irs.gov/forms-pubs/schedule-c-form-1040-profit-or-loss-from-business
https://www.bitcointaxsolutions.com/can-i-deduct-mining-costs/
www.reddit.com/r/NiceHash/comments/7e18ts/bitcoin_mining_and_taxes/
https://klasing-associates.com/question/bitcoin-miners-required-pay-self-employment-tax/
https://thecryptotaxcenter.com/2017...rencies-and-why-the-irs-may-owe-you-a-refund/
http://theminersunion.com/2017/09/11/what-you-need-to-know-about-bitcoin-mining-taxes/
https://bitcointalk.org/index.php?topic=55731.0 (some old/bad info in this thread I think)
https://www.irs.gov/newsroom/business-or-hobby-answer-has-implications-for-deductions
https://bitcoin.tax/blog/filing-your-bitcoin-taxes/ (part 1 of 3)
https://bitcoin.tax/blog/filing-your-bitcoin-taxes-income-spending-mining/ (part 2 of 3)
https://bitcoin.tax/blog/filing-your-bitcoin-taxes-1040-capital-gains/ (part 3 of 3)
Right now, I'm fairly convinced that:
1) I am doing this is a hobby, not a business (at least for 2017 taxes). For 2018, right now I still consider it to be a hobby, but things could change by the time I file for 2018.
2) I will be reporting my crypto mining as "other income" on line 21 of 1040 rather than on schedule C, because it is a hobby, not a business. Yes, I won't be able to deduct expenses. Oh well. It's for fun, not necessarily for profit, even though that is the hope. We're not talking huge numbers here for me anyway.
References (aka crap I read through tonight trying to find answers):
https://ttlc.intuit.com/questions/4...ord-each-day-mined-or-when-you-receive-payout
https://www.irs.gov/forms-pubs/schedule-c-form-1040-profit-or-loss-from-business
https://www.bitcointaxsolutions.com/can-i-deduct-mining-costs/
www.reddit.com/r/NiceHash/comments/7e18ts/bitcoin_mining_and_taxes/
https://klasing-associates.com/question/bitcoin-miners-required-pay-self-employment-tax/
https://thecryptotaxcenter.com/2017...rencies-and-why-the-irs-may-owe-you-a-refund/
http://theminersunion.com/2017/09/11/what-you-need-to-know-about-bitcoin-mining-taxes/
https://bitcointalk.org/index.php?topic=55731.0 (some old/bad info in this thread I think)
https://www.irs.gov/newsroom/business-or-hobby-answer-has-implications-for-deductions
https://bitcoin.tax/blog/filing-your-bitcoin-taxes/ (part 1 of 3)
https://bitcoin.tax/blog/filing-your-bitcoin-taxes-income-spending-mining/ (part 2 of 3)
https://bitcoin.tax/blog/filing-your-bitcoin-taxes-1040-capital-gains/ (part 3 of 3)
Right now, I'm fairly convinced that:
1) I am doing this is a hobby, not a business (at least for 2017 taxes). For 2018, right now I still consider it to be a hobby, but things could change by the time I file for 2018.
2) I will be reporting my crypto mining as "other income" on line 21 of 1040 rather than on schedule C, because it is a hobby, not a business. Yes, I won't be able to deduct expenses. Oh well. It's for fun, not necessarily for profit, even though that is the hope. We're not talking huge numbers here for me anyway.
I would have to amend my taxes. May be I will do it next year. I did open up an llc. But since I probably lost money a little even after mininng and equipment I didn’t want to bother. But I have all the files from nano pool of mined payments if I ever need them. I should have would have probably gotten more money back. Oh well.
ajrettke33
Limp Gawd
- Joined
- Dec 7, 2014
- Messages
- 152
If you're a big miner (10k+) I'd start to claim the income....the IRS is pretty short staffed to do audits and such for everyone, but you can sure as heck bet they'll go after the big fish when they start to cash out for USD.
Airbrushkid
2[H]4U
- Joined
- Aug 27, 2007
- Messages
- 2,428
WOW Hahaha.
exactly my point. I think they are going after big fishes for sure. I also think coinbase automatically reports withdrawls higher than 25k. So better to split up your withdrawls and yest if you are mining big and big income. It is better to report it. Actually if I had withdrawn over 25k I sure would have reported it. I didn't make much overall profits last year from trading since I was new to the game. This year hopefully I make enough to report lol
Red Squirrel
[H]F Junkie
- Joined
- Nov 29, 2009
- Messages
- 9,211
Actually if exchanges start to track this, and send you appropriate paperwork in the mail at end of the year, it would make this so much easier. But still, if the government actually starts taxing individual transactions like I heard from some rumours, even between crypto currencies, it will make day trading pretty much pointless unless you can yield more than 33% profit off each trade, otherwise you'll lose more money than you make.
well that is what precisely whats hard. How do you pay more than you profit? That is obsurd and doesn't make sense. you are suppose to pay on your capital gains correct? I dont understand about the 33% profit each trade. you are suppose to pay a percentage of your profit not pay pay a guaranteed percentage on your trade. if you know what I mean. So no matter each trade or you can just pay tax on your overall profit.
Red Squirrel
[H]F Junkie
- Joined
- Nov 29, 2009
- Messages
- 9,211
Well I'm just guessing 33% since that's a typical tax rate, but I even read as high as 40%. The issue is, what does the government consider a capital gain. Do they care about how much money you put into it before? Heck they will probably want to tax you on that too, ex: sales tax. So you would pay 15% when you buy crypto and then pay 33% when you cash it in. But I'm just guessing, no idea how any of this works, that's why I hate that they even tax it in first place, it just makes it so complicated for nothing.
Speaking from a United States point of view, no, that's not how it works. If you establish a position worth $1000, that's your cost basis. If it doubles to $2000, you don't pay tax on the full $2k, you pay it on the gain of $1k. If it's less than a year, it's ordinary income, if it is longer than a year, it gets favorable long-term capital gain treatment.
No I think you are looking at it wrong. From what I understand You have a TAX bracket. You can search for it online. Once you find your tax bracket search tax bracket for capital gains. It will tell you short term and long term and how much you are suppose to pay on your gains. You don’t pay 15% when you buy. If it’s capital gains it tells you clearly what percentage of tax you are suppose to pay.
Yep! Also depends on your bracket. Actually if you barely make any income let’s say in 2018 but you make 200k in crypto. You will only pay 15% tax. So at some point take a family leave rofl. If you make over 75 or 90k I think you pay 25%. I think short term is 25% regardless on any tax bracket. So this is why I tell people just look at your profits and pay 25% instead of recording each transaction and stressing over it. Pay 25% on your overall profit and call it a day.